Who, How, and Why: $140 Oil and $5 Gas

According to a loosely-organized apocalyptic Christian movement, May 21, 2011 will be the “end of days.” On or about that same date, the price of oil in the United States will begin to climb to $4 a gallon, according to two savants of the oil industry.

The former is highly unlikely but the latter is very probable.

The escalation in the price of oil is predicted by the legendary oil man T. Boone Pickens, known for his financial acuity as well as his oil expertise, and John Hofmeister, who retired as president of Shell Oil Company, to sound the alarm about the rate of U.S. consumption of oil.

In an interview with a trade publication, Hofmeister predicted that oil would rise to $4 a gallon this year and to $5 a gallon in the election year 2012. Separately, Pickens—who has been leaning on Congress to enact an energy policy that would switch large trucks and other commercial vehicles from imported oil to domestic natural gas—predicts that oil currently selling for just over $90 a barrel will go to $120 a barrel, with a concomitant price per gallon of $4 or more.

The Obama administration appears to have been slow to grasp the political implications of an escalation in the price of oil. When asked about it, outgoing White House Press Secretary Robert Gibbs referred the questioner to the Department of Energy.

Not everyone is alarmed by the incipient rise in the oil price. Republicans, who are especially close to the oil industry and its Washington lobby, orchestrated by the American Petroleum Institute, think that a great deal of hay can be made while this particular sun shines. They plan to attack the administration for spending too many resources on alternative fuels, over-regulating the industry, and keeping too many federal lands away from oil prospecting. They also accuse the administration of being too frugal with its release of drilling areas in the Gulf of Mexico and on the two coasts, as well as Alaska.

The Republicans have unlikely bedfellows in their quest to politicize the price of oil. They are joined by environmentalists who have long believed that only high prices will break America’s passion for the automobile.

Environmentalists have long advocated European-style taxation to drive motorists out of their cars and onto buses and trains.

A third interest group that will take some pleasure in rising oil prices are those who are invested in alternatives such as ethanol, oil from algae and electric vehicles.

Meanwhile, the International Monetary Fund is keeping an eye on the price of oil, according to Caroline Atkinson, director of external relations at the IMF. She told a Washington press briefing that the IMF is particularly concerned with food and other commodities that are directly affected by the price of oil.

Hofmeister, who now heads the non-profit Citizens for Affordable Energy that advocates energy development in all forms, believes that the United States could increase oil production from the current 7 million barrels per day to 10 million, half of its consumption. He told an interviewer from Platt’s, an energy publisher and broadcaster, that we were “essentially frittering at the edges of renewable energy, stifling production in hydrocarbon energy,” which he said could lead to blackouts, brownouts, gas lines and rationing.

There are already signs that the Republican-controlled House of Representatives is planning a big push for hydrocarbon energy. An indication of this comes from Rep. Fred Upton, R-Mich., a one-time global-warming believer who has dropped that issue from his agenda. He is the new chairman of the House Energy and Commerce Committee.

In periods of high gasoline prices in the past, presidents have found there is very little that they can do. Their options are to reduce the tax on gasoline, sell oil from the Strategic Petroleum Reserve or the Naval Petroleum Reserve. President George W. Bush went a step further: He went to Saudi Arabia twice to ask the Saudis to increase their rate of production. Twice he came back empty-handed.

All of this would be good news for the oil producers and especially those troublesome players, Russia and Venezuela.

Of course, if you believe the human endeavor ends on May 21, better fuel the SUV and hit the road.

I agree profoundly, although selecting these citations near the flame are so much not your usual style, others do that incessantly, we are in dearth of facts; please point to action on the ground so we can go and gather around, get things done. So much better with less policy brow beating but more nuggets of measuring and more invitations to on-site expo.

There are already signs that the Republican-controlled House of Representatives is planning a big push for hydrocarbon energy. An indication of this comes from Rep. Fred Upton, R-Mich., a one-time global-warming believer who has dropped that issue from his agenda. He is the new chairman of the House Energy and Commerce Committee.

Interesting…someone from Michigan in the Chairman position of the House Energy and Commerce Committee. Everyone in Michigan should now form a new lobby…and play the game.

We might hit those numbers, but I don’t see how they can be sustained. We have food riots already, food commodities are surpassing or rivaling the highs of ’08. With the US+EU using roughly 1/3 the world’s available oil, a downturn in either could change the picture dramatically.

I suspect that this is too pessimistic. In 2008, OPEC spare capacity was reckoned to be uncomfortably low, from as little as 1 to 2 mm barrels per day. The situation now is different, with many estimating over 5 mm barrels per day.

When prices skyrocketed in 2008, OPEC was dumping oil into the market: their 3Q 2008 production was almost 2 mm barrels per day more than their 2007 average. I think they would do the same in 2011 (and not necessarily out of altruism), if high oil prices once again started to seriously threaten the world economy.

Umm. We will be increasing the size of the backyard vegetable garden in 2011. Already our household is cutting back on auto trips. The simple trick of blowing summer air through the basement and into the house is helping – soil temperature is 5 deg F above last year at this time. This old house is still not comfortable (-7 deg F outside) but the heat we have costs less. (Use a dehumidifier if you do this)

Our garbage and recycling trucks run on natural gas. I was surprised to learn when I looked into it that once you compress it into a liquid, natural gas is not much better than oil when it comes to emissions thanks to all of the energy consumed compressing it.

And when you look into GHG emissions, the more natural gas you use, the more leaks you get and methane is an order of magnitude more effective as a GHG. Using it to generate electricity as opposed to fueling millions of vehicles would create fewer leak points.

Republicans [Politicians] who are especially close to the oil industry…

Environmentalists [Those who] have long advocated European-style taxation to drive motorists out of their cars and onto buses and trains…

A third interest group that will take some pleasure in rising oil prices are those who are invested in alternatives such as ethanol, oil from algae and electric vehicles…

Note that your third group does not have a label like environmentalist or Republican. Not all Republicans are close to the oil industry, not all environmentalists favor forcing motorists onto buses and trains.

The price of petrol in Australia is $US5 per gallon, and that is considered OK. There is something horribly wrong with the US economy if petrol nudging $4 per gallon is such a huge concern.

That is not really the problem. The problem with oil going to $140 means everything that uses oil goes up as well. The US could probably handle $4-5 per gallon gas if it happened in isolation, but $4-5 gas combined with inflation in all other goods is going to take a huge toll.

That’s why we should have taken the EU route and kept gas prices high after the embargo, while other consumer goods remained very cheap. We would have had time to adjust to the high gas prices. Now it seems we will be hit with a double whammy.

…which he said could lead to blackouts, brownouts, gas lines and rationing.

Not that garbage again! Earth calling Hofmeister: Gas lines and rationing only happens when the prostitutians decide to help out. Let’s hope they can resist the temptation.

That is not really the problem. The problem with oil going to $140 means everything that uses oil goes up as well. The US could probably handle $4-5 per gallon gas if it happened in isolation, but $4-5 gas combined with inflation in all other goods is going to take a huge toll.

I guess we better ask Bill how the Australians managed to uncouple the effects. Seriously, if Australia can cope, why can’t America, OD?

I can’t wait for a sustained $140/bbl and $5/gal: if there is a feasible alternative to oil, these prices would smoke it out. If not, well I guess we’ll all be driving a lot less. And prioritising our driving. Watch innovation kick in. Remember: Necessity is the mother of invention. Until prices come down again, if ever. It’s not rocket science.

And once the economy booms in spite of (or thanks to) $140/bbl and $5/gal the doomers will have to find some other scary story to peddle fear. Peak water, anybody? Peak lithium, maybe?

I guess we better ask Bill how the Australians managed to uncouple the effects. Seriously, if Australia can cope, why can’t America, OD?

Reread my post, I did not say the US could not handle $4-5 gas, what I said was the trickle down effect that $140 oil will have on nearly all consumer goods(including food) PLUS gas in the $4 range is going to be very hard on many people.

I share your concenrs, but man, oh, man, what happened to us following the property bust–the destruction of $2 trillion in capital, most of it borrowed–just swamps oil prices. We hurt ourselves.

I never fear the future when it comes to technical issues, or resource issues per se. You got guys like RR working to the make the world better, in every field, and more of them all the time (thanks to China and India). We have gobs of capital to devote to new technologies. The Internet speeds technical info immediately, globally.

Like many others, I feat the USA will adopt such poor governmental positions that we harm ourselves. However, the good news is that we only need mediocre government to prosper. So far, we have cleared that bar, with the possible exception of the Bush Administration.

I think that what you are saying, while in principle is true, is in effect a bit of a myth. Energy cost in most products is a marginal input. Sure you can cite plenty of specific items where energy content is high (aluminium, jet travel, longhaul road transport, corn ethanol [at least the way that it is produced in the US]) but overall energy is a marginal input into most manufactured items, and most of that energy is electrical energy, and not severely effected by rising oil prices. Furthermore, these higher energy content industries have not yet been put the the test of having to cope with the higher oil price cost structure, and therefore have not been forced to apply ingenuity to their energy useage, as several people upthread have suggested.

The single most damaging immediate aspect of higher oil prices is the cost of personal transport for long distance commuting. The immensely destructive process of our US and Australian city development forces the poorest and most vulnerable (young families) to travel the furthest to work. Public transport is no real solution to this problem as it is so time inefficient. Better city planning with integrated regional light industrial development incentives is an essential adaptation required immediately. In other words, rather than build more freeways (and worse…tollroads), build more balanced communities with the theme of “Buy more locally produced goods. Produce more goods locally.”

Big business served to make America great…for a time. Then when the rest of the world caught up it served to make America weak. Big industry was vulnerable and inagile. Consecutively big money sold out to Chinese imports for quick profit and drove the knife home into the heart of US enterprise….with a few exceptions.

I have been fantacising lately about a franchised chain for boutique home produce preserved goods. In Sydney there is a wine cellar that has crates of wine from every Australian winery. It is a real adventure three stories high like a library.

My wife makes the absolutley best tomatoe relish. And it is not hard to do, but makes such a difference to so many foods.

Many years ago I took a rail tour to a cave system south of Sydney. The tour operators organised a small community along the way to the cave system to provide morning tea for the entire tour group. This country town ladies group put on the most lavish spread that I have ever seen, but also had all of their cherished home preserves available for sale. It was very exciting.

The knowledge of our grandmothers is withering away, but what an immense resource this was….and still is there to be tapped into.

“Energy cost in most products is a marginal input. Sure you can cite plenty of specific items where energy content is high (aluminium, jet travel, longhaul road transport, corn ethanol [at least the way that it is produced in the US]) but overall energy is a marginal input into most manufactured items, and most of that energy is electrical energy, and not severely effected by rising oil prices.”

BilB again demonstrates the systematic way to tell a lie is to slip it with an obvious truth. Let me pick apart his logic using a disciplined systematic such as LCA.

Let’s start with aluminum and metal in general. Producing metal from raw ore does require energy but recycling metal does not require much energy. Then you have to look at the use. Metal products in buildings might last 100 years but a beer can is a consumable product. Using LCA we might find that plastic beverage containers might use less energy (a byproduct of transportation fuel production in many cases) than reusable glass bottles or aluminum cans.

“jet travel”

That is a service not a product but a service. For example, when RR travels by jet the product he produces in engineering. Certainly not a concern of the most vulnerable poor families.

“corn ethanol”

This is an energy product to be compared with gasoline produced with oil. Most of the energy input comes from the sun. Of course the purpose of corn ethanol is to mitigate the increasing cost of oil. A very clever lie to associate corn ethanol with things that use lots of oil.

“The immensely destructive process of our US and Australian city development forces the poorest and most vulnerable (young families) to travel the furthest to work.”

Again not true. The reason for long commutes to put your kids in a nice house with good schools. I am doing the same job that I did when I worked in a big city. Drove the same distance. My $150k would cost $1M and my $1000/year property taxes would be $5000/year. When we lived in the big city, we sent out kids to private school. The public schools where we live since then have been very good.

“build more balanced communities with the theme of “Buy more locally produced goods.”

Sounds good but I do not think they would use less transportation fuel. I can think of many examples of corn ethanol creating local jobs in communities where nice houses cost $75k and the kids walk to school.

“Then when the rest of the world caught up it served to make America weak.”

Weak how? Fifty years ago South Korea was one of the poorest counties in the world now they are one of the richest. South Korea just beat out France, US, & Japan out of an order for 4 nuke plants. Having stronger allies does not make America weaker. Some are worried that China’s economic boom makes us weaker. When China depends on trade, it becomes dependent on the US and our allies to maintain the sea lanes open.

The bottom line is that Americans drive lots of SUV because we are very productive and energy is cheap. I suspect $5 gasoline will result in lots of complaints but not a lot fewer big pick ups with gun racks. We like what we like and the response to communists is ‘you and whose army’.

Depending on CAPEX and OPEX…that is something our technology cannot come close to competing against in using CO2 as the sole source feedstock. It truely is the ‘game changer’ as Senator Kerry said if they can produce those yields at that cost of production.

It is certainly needed to compete … and if Algae got a $600 million boost from Exxon, and Bloom got $500 million…these guys are in for a massive amount of funding very shortly! The claims will be proven over time…but it looks very encouraging.

“Robert, this is off-topic, but could you comment on Joule Unlimited’s claim that they can create diesel or gasoline using E. coli bacteria, and that their method can produce 800bbl per acre?”

Hi Laura,

Been getting lots of inquiries about this. Here is what I have been telling people:

“I was at the Pacific Rim Summit a year ago when Joule announced what they were doing. I was sitting with a number of algae experts, and they were very skeptical. I would also say that they are at a very early stage — still in the lab. Most technologies don’t progress out of the lab, so the best I could say is that it is premature to count on much of anything from them. I look at it as a research project, and most of those do not pan out.”

The truth is, we have heard all of this before. Maybe one day one of these really will be a game changer, but in my view their claims are very premature based on the fact that they don’t yet even have a pilot facility. It may turn out that in fact their claims ultimately pan out, but it is a pretty safe bet that 90% of what looks promising in the lab never makes it to a commercial scale.

“Robert, this is off-topic, but could you comment on Joule Unlimited’s claim that they can create diesel or gasoline using E. coli bacteria…. Hi Laura, Been getting lots of inquiries about this.

While Joule’s secret sauce is a now-patented genetically-engineered E. coli bacteria – there is some other breaking news from CalTech today. Note link below…

I always wonder about biologically-driven batch fuel conversion processes vs: simple and continuous 24×7 methods of thermal steam becoming the active process driver to source-separate carbon, hydrogen and oxygen atoms and then catalytically reconfigure two or three of these atoms into either hydrocarbon or oxycarbon alternative fuels.

And I wonder also what might happen if a new E. coli bug escapes and invades waterways, lakes or municipal water systems?

Most readers may be somewhat familiar with occassional food recalls where just a little E. coli contaminated domestic or imported fruits and vegetables, — killing and sickening many people before its origin is traced and then a major food recall begins.

Elsewhere on the alternative fuels frontier, high temperatures and a special metal are being researched to create CO & H2 building blocks of synthesis gas, — the precursor to both float-on-water Fischer-Tropsch synthetic oils and biodegradable, water soluble, oil soluble and coal soluble fuel alcohols. Herein the (new) CalTech process feedstocks are waste CO2 ostensibly collected from coal-fired power plant smokestacks plus water. Concentrated thermal high-heat from solar plus a catalytically-active metal are the process drivers… This sounds very interesting and is topical.

While the venture capital so necessary for continued evolution of the biofuels industry has waned amid the fanfare of certain failures being discussed, scientists from CalTech are making some new news today. I wish them and other inventors/pioneers the very best of luck. In the end game, the best, simplest and cheapest alternatives WILL presumably become implemented into mainstream energy economics.

–Mark

01/19/11

New CalTech Reactor Paves the Way for Efficiently Producing Fuel from Sunlight

The catch with the Joule technology is not the core innovation, which I am enthusiastically willing to believe is solidly based, but in capturing the CO2. At just .3% concentration in the air it requires a huge amount of effort to collect this if one has to do it as a preprocess. If you read the press release carefully you will notice that they that “if you have a supply of CO2″ and then talk about from power plants,etc. Now if your objective is to just make oil substitutes available then using CO2 from fossil fuel power plants will make sense. But if you also intend to reduce atmospheric CO2 levels then this process is a better use of fossil fuels effectively doubling the efficiency via a second pass of the CO2 before release.

It is however conceiveable to set up a closed loop CO2 cycle with this technology where the CO2 passes through the convertor to produce hydrocarbons, then burn that material to produce electricity while capturing the CO2 for reprocessing in the reactor, and so on.

The bugbare with bioreactors remains absorbing CO2 from the atmosphere. The NASA Omega project is still the best concept from that point of view so far, in my estimation. Having said that, if the Ecoli are more efficient than algae then that is a huge step forward. You then have to consider the implications of releasing a genetically modified bacteria to the environment. This would have to contemplate the possibility of CO2 reduction overshoot. We live in a fairly nicely balanced atmospheric environment. Suitably breathable but not TOO combustible. If the O2 level increases too far then the combustibility of surface carbon (plants etc) increases and spontaneous combustion becomes a risk. So an agressive CO2 consumer active in the biosphere may have unanticipated consequences, with Ecoli coated surfaces becoming greasy with secreted oils and fires becoming more intense where ever they occur.

There is a warning to be had from genetically modified crops which produce insecticides now contaminating waterways with insecticide production overshoot.

My Toshiba laptop keyboard for some reason causes the cursor to jump bacwards in the text as I am typing mixing up the text. it is a real pain, so this

“Now if your objective is to just make oil substitutes available then using CO2 from fossil fuel power plants will make sense. But if you also intend to reduce atmospheric CO2 levels then this process is a better use of fossil fuels effectively doubling the efficiency via a second pass of the CO2 before release”

should have read as

Now if your objective is to just make oil substitutes available then using CO2 from fossil fuel power plants will make sense as it is a better use of fossil fuels effectively doubling the efficiency via a second pass of the carbon before release as CO2 to the atmosphere. But if you also intend to reduce atmospheric CO2 levels then this process will not achieve the objective without an additional CO2 capturing technology.

The catch with the Joule technology is not the core innovation, which I am enthusiastically willing to believe is solidly based, but in capturing the CO2. At just .3% concentration in the air it requires a huge amount of effort to collect this if one has to do it as a preprocess. If you read the press release carefully you will notice that they that “if you have a supply of CO2″ and then talk about from power plants,etc. Now if your objective is to just make oil substitutes available then using CO2 from fossil fuel power plants will make sense. But if you also intend to reduce atmospheric CO2 levels then this process is a better use of fossil fuels effectively doubling the efficiency via a second pass of the CO2 before release.

It is however conceiveable to set up a closed loop CO2 cycle with this technology where the CO2 passes through the convertor to produce hydrocarbons, then burn that material to produce electricity while capturing the CO2 for reprocessing in the reactor, and so on.

The bugbare with bioreactors remains absorbing CO2 from the atmosphere. The NASA Omega project is still the best concept from that point of view so far, in my estimation. Having said that, if the Ecoli are more efficient than algae then that is a huge step forward. You then have to consider the implications of releasing a genetically modified bacteria to the environment. This would have to contemplate the possibility of CO2 reduction overshoot. We live in a fairly nicely balanced atmospheric environment. Suitably breathable but not TOO combustible. If the O2 level increases too far then the combustibility of surface carbon (plants etc) increases and spontaneous combustion becomes a risk. So an agressive CO2 consumer active in the biosphere may have unanticipated consequences, with Ecoli coated surfaces becoming greasy with secreted oils and fires becoming more intense where ever they occur.

There is a warning to be had from genetically modified crops which produce insecticides now contaminating waterways with insecticide production overshoot.

This is off-topic to the original article, but somewhat on-topic with many of the comments. Recently, I ran across one of the principle’s of this company, http://www.windfuels.com , who was bashing solar and EV technology. His claim is that his process of converting CO2 to liquid fuel with windpower makes the need for alternative energy sources irrelevant. If such a thing were possible, I don’t think it would “solve” all of our energy issues, but it would certainly be good news.

Thanks CarbonBridge, I did actually attempt to register as a member but the process went a little wonky and I do not know how it ended.

JSM,

From what your guy says on his site, JSM, everything there is achieveable, except perhaps the level of output.

The qualifiers are that to produce fuels for combustion, automatically derates the cycle efficiency to about 30% as combustion is a low efficiency process. It is far more efficient to utilise night time wind energy production for the charging of electric vehicles. This should soak up most of the overcapacity.

The chemistry is not my skill at all, but it should be possible (I am guessing) to produce CH4 (methane/natural gas) from H2O and CO2 with the byproduct being O2. But then if you are able to use CH4 to power fuel cells then that becomes a desirable end result.

There are a lot of possibles yet to happen (including my group’s GenIIPV). It is just going to take more time for opportunity to meet investment, to complete development, to deliver output. In between time those who dare to imagine a better more efficient world become moving targets for those with loud mouths and no creative ability.

In between time GenIIPV came about from a discussion where my partner had decided that residential scale wind energy could not deliver sufficent benefit due to the limitations of residential property limitations and the wind area required to achieve a meaningful output. We have since revised that view to some degree after a rethink of the Darrieus turbine, and how it might be applied at the domestic residence scale.

Recently, I ran across one of the principle’s of this company, who was bashing solar and EV technology. His claim is that his process of converting CO2 to liquid fuel with windpower makes the need for alternative energy sources irrelevant. But my question is whether such a thing is even feasible?

Is this firm’s liquid fuel production from wind and CO2 greenhouse gas even feasible? Instead of writing a couple of chapters, please review the small screen shot above clipped from the home page of Dr. Doty’s own windfuels website. I believe this is the weakest link of everything downstream which he espouses in considerable detail. Breaking water apart via gridded electrolysis is a very expensive path to take in order to isolate the H2 portion of CO & H2 synthesis gas building blocks to produce an array of alternative fuels. Nuff’ said — and you are asking a very legitimate question.

–Mark

[Later addition... Using gridded electricity to perform basic electrolysis whereby anode and cathode are immersed into water, jolting electricity between these poles and breaking H2O apart into H2 and O gasses which really want to recombine and magnetically form water once again. In this process, H2 and resulting O need to be kept separated. Electrolysis used to split water apart into two basic gasses definately works. However, electrolysis is not a cheap method to generate lots and lots of hydrogen gas used as CO & H2 syngas to further catalyze and re-arrange these basic atoms into different types of liquid, synthetic fuels.I might term generating Hydrogen via electrolysis as something akin to a really bass-ackwards approach, -- yet I'll refrain from expounding further. BilB: I did say chapters here and it is not my intention to run another firm's technology down. I'm simply pointing out the 'weakest link' herein in my opinion. The rest of the story should be up to the individual to evaluate based upon its merits, Capex, Opex, etc.]

Not a term I have heard before but when you put electricity into the grid it gets sold to the the highest bidder. I sure that Mark can explain what happened to the aluminum industry in the PNW when smelters could make more money selling electricity used make aluminum to California. From the Doty Energy website:

“At $10/MWhr (the real-time off-peak price seen in mid-2009 in high-wind regions), the cost of the energy needed to make a gasoline or jet fuel, at just 50% efficiency, would be under $0.75 per gallon.”

The first thing you have to look at is how many hours a year can generators produce electricity at a loss without taking power plants off line. IIRC the average generating costs in 2009 was $50/MWh but was $85/MWh when the economy was strong.

But later on the same page,

“The mean levelized cost of energy (LCOE) at current U.S. turbine prices ($1300/kW) is about $36/MWhr”

So the Doty Energy website completely glosses over the issue of the cost of making electricity with wind.

If you are selling solar panels, you claim that electricity is worth $160/MWhr. If you are trying to get investors to invest you claim you can get electricity for $10/MWhr

The other consideration is that FT is capital intensive like many large industrial facilities. When these facilities run near capacity they are not not very economical but when they run at only 10% they are very very expensive. This is why an industrial society need reliable sources of electricity like coal or nuclear.

It is not running it down in this case, CarbonBridge, it is evaluation. The main flaw that I can see is that the Dotty system needs to be in 2 places. It needs to be on the real estate of the wind mill for cost effectiveness, and at the same time it needs to be very near a power station for CO2 availability. It sort of makes sense to use otherwise wasted electricity to generate hydrogen, but then on producing to make fuel becomes a bit odd. In a grid system if energy is coming in sustained volume from wind mills coal power stations or gas power generators optimally should throttle back to conserve fuel. With this option available it makes no sense having plant producing fuel when it can simply be redirected. It only makes sense in a totally renewable system where fossil fuels are not available at all. And that will not be the case for some decades yet. So whereas it is feasible to produce fuel from wind energy, this is not the time for it.